Changes in (R&D) tax relief were announced in the March 2021 Budget, with a cap on the amount of R&D tax credit which can be paid to a loss-making small or medium-sized enterprise (SME) will be introduced for accounting periods which commence on or after 1 April 2021.
Prior to the introduction of the cap, loss-making SMEs incurring qualifying expenditure on R&D activities are allowed to make a claim to surrender the unrelieved loss for a payable tax credit of up to 14.5%.
For accounting periods commencing on or after 1 April 2021, payable tax credits are restricted to £20,000 plus three times the company’s relevant expenditure on workers.
Relevant expenditure on workers is the company’s PAYE and NICs for the period and importantly this is the company’s whole PAYE and NIC liability. In addition, if the company is supplied with workers by a connected company the relevant workers’ expenditure is extended to include a proportion of those worker costs.
Some companies which create or manage intellectual property and spend less than 15% with connected persons on R&D qualifying expenditure will be exempt from this cap.